By Sabrina Willmer
Albertsons Cos. should hold off on a $4 billion dividend payment to shareholders while a pending merger with Kroger Co. is reviewed, Washington, D.C., Attorney General Karl Racine said on behalf of a bipartisan group of attorneys general.
The dividend “could be a massive improper giveaway to certain shareholders,” Racine said Wednesday on CNBC’s Squawk Box, in announcing that the AGs had asked Albertsons to pause the payout. With less cash available, the grocery chain would face difficulty competing in what is already a “very, very tough marketplace” should Kroger’s planned takeover of Albertsons be blocked, he said.
Albertsons announced the dividend after agreeing to merge with Kroger in a deal valued at $24.6 billion. Racine said he was concerned about the merger hurting competition and raising prices. If Albertsons doesn’t halt the dividend payment voluntarily, the AG’s office could seek an injunction in court, Racine said.
On Wednesday, Racine and attorneys general from Arizona, California, Idaho, Illinois and Washington state sent a letter with their request to the chief executives of Albertsons and Kroger. They said the merger has the potential to impact consumers already hurting from inflation, as well as the wages of hundreds of thousands of employees.
“We will, of course, review the entirety of the merger,” Racine said during the CNBC interview.
Colorado Attorney General Phil Weiser said he shares the concerns about Albertsons’ planned $4 billion dividend payment in light of the proposed merger. “The timing of this dividend is questionable and I join other attorneys general in asking Albertsons to delay this dividend payment while the merger is under review,” he said in a statement.
Weiser has said his department is monitoring the possible merger of Albertsons, which operates Safeway stores, and Kroger, the parent company of the King Soopers and City Market stores in Colorado. He said the possibility of “undue consolidation in the grocery business” raises serious concerns due to the companies’ large footprints in the state and the potential impacts on consumers and employees.
In a statement, Albertsons stood by plans for the merger and the payout. “Following the dividend payment, Albertsons Cos. will continue to be well capitalized with a low debt profile and strong free cash flow,” the company said. “Given our financial strength and positive business outlook, we are confident that we will maintain our strong financial position as we work toward the closing of the merger.”
A Kroger spokesperson didn’t respond to a request for comment.
The move by Racine and his counterparts presents a twist in what has been a long ownership journey for Cerberus Capital Management, which paid $350 million in 2006 for Albertsons. Cerberus, the grocery giant’s largest investor, stands to make more money from an already profitable deal with the proposed merger price valuing its remaining stake at $5.2 billion.
A spokesman for Cerberus declined to comment.
The proposed tie-up would create a grocery company with almost 5,000 stores and annual revenue of about $200 billion. It would have increased buying power and an opportunity to save on costs as brick-and-mortar retailers invest heavily to enhance their online offerings.
A key impetus for the deal is giving Kroger entry into the Northeast, filling out its national footprint. In areas with overlap, the companies plan to offload as many as 375 stores through a spinoff if they can’t find buyers for them.
The two have pledged to use $500 million of the savings generated by the merger to cut prices for consumers. Overall, Kroger and Albertsons say, they’ll squeeze out about $1 billion in annual cost savings within the first four years of the deal’s closing, after divestitures, thanks to improved purchasing, technology investment and optimized manufacturing and distribution networks.
The merger “will provide significant benefits to consumers, associates and communities and offers a compelling alternative to larger and non-union competitors,” Albertsons said in the statement Wednesday.
Two U.S. senators said last week they would hold a hearing in November on the deal’s impact on competition among grocery stores.
— Denver Post reporter Judith Kohler contributed to this story.
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